Millions of people tune in each week and follow the advice of personal finance experts, Suze Orman and Dave Ramsey. They are the two most well known figures in the area of personal finance in the country. Guests call in to hear Suze’s opinion on whether or not they can afford a luxury cruise. Callers check with Dave to see if their financial house is in order. So, who has the better advice? Let’s take a closer look at the two financial pundits.
Dave Ramsey is the author of numerous books and hosts a nationally syndicated radio show and a financial program on Fox Business. He has an “in your face” style of teaching, and many people tend to reject his teachings because they’re so different than what you normally hear from personal finance gurus. His personal finance advice has a common sense approach, and many people criticize him for that, but even though his advice is considered “common sense,” statistics show that the majority of Americans still aren’t following the common sense approach to personal finance. In his book, “The Total Money Makeover”, Dave Ramsey outlines his financial plan called, The Seven Baby Steps.
The Seven Baby Steps
1. Start with a $1,000 emergency fund.
The emergency fund is designed to keep you from relying on debt to deal with any financial emergencies that occur. Dave states that unexpected results are not only likely to happen, but will definitely occur.
2. Pay off all debts using the Debt Snowball.
The debt snowball is a strategy of paying your smallest debts first. Accounts with smaller balances are paid before larger balances regardless of the interest rate. The reasoning behind this is that paying off smaller balances gives the debtor a sense of accomplishment and builds momentum towards paying off larger debts.
3. Place 3 to 6 months worth of living expenses in your savings account.
Once you have all of your debts paid off, you should increase your emergency savings to cover living expenses in case of job loss or illness.
4. Invest 15% of household income into Roth IRA’s and pre-tax retirement plans.
This is the wealth building part of Dave’s plan. All of the money saved using these plans is designed to be used strictly for retirement.
5. Begin college funding for children’s education.
Start saving today for your child’s education. Dave recommends saving for college using Education Savings Accounts and 529 plans.
6. Pay off the mortgage on the house.
This is the largest debt that you will ever have in your lifetime, which makes it the last debt to pay off. All of your extra income should go towards your mortgage principal and paying off your home loan as soon as possible.
7. Build wealth and give to charitable organizations.
Save for your heirs and contribute to your favorite charities so that you can leave a legacy for your kids and others.
These seven steps are the cornerstone to what Ramsey teaches, and he never deviates from these steps. You can always count on Ramsey to be consistent with what he preaches, and he lives a life that backs up what he teaches.
Suze Orman has authored six best-selling books and hosts a financial program on CNBC. Orman also takes a common sense approach to personal finance, and she is often criticized for oversimplifying someone’s financial situation. Her philosophy and teachings are much different than Ramsey, because unlike Ramsey, she will not denounce the use of credit cards or other personal loans the way he does. In her book, “Suze Orman’s 2009 Action Plan,” she illustrates The 9 Small Financial Steps That Will Pay Off Big In The Future.
The 9 Small Financial Steps That Will Pay Off Big in the Future
1. Save a bit at a time.
Suze recommends building your emergency savings account by saving money a little at a time.
2. Have a little self discipline!
Eliminate non-necessity spending from your budget. Look through your bank and credit card statements and eliminate any unnecessary spending.
3. Automate your plan.
Make saving for your emergency fund, retirement plan, and savings account automatic. Regularly scheduled transfers can make saving money and paying bills a breeze.
4. Max out on the company’s match.
Suze suggests contributing enough to your 401(k) to receive the maximum amount of matching funds from your company. Not doing this is the same as turning down free money.
5. Invest in a Roth IRA.
Suze recommends that you create a Roth IRA for the tax-free income growth. For more information on Roth IRA’s, read my article on What is a Roth IRA – Benefits and Restrictions.
6. Subtract your age from 100 and put that much in stocks.
The percentage that you should invest in stocks is your age subtracted from 100. The rest should be invested in bonds. The stock portion should be broken down with 70 percent in U.S. stocks and the rest in international funds.
7. Spend $50 a month for peace of mind.
$50 a month will buy you a term life insurance policy which should give you and your family peace of mind.
8. Create the four most loving documents in existence.
Every person should have a revocable living trust, will, power of attorney for finances, and power of attorney for healthcare.
9. Add a 13th mortgage payment.
Making one extra mortgage payment a year will take five years off of the length of your mortgage.
Review of Dave Ramsey and Suze Orman
I personally prefer Dave Ramsey to Suze Orman, because I think Dave’s method of getting out of debt works faster. Although Suze is the more entertaining of the two, her plan teaches debt management whereas Dave’s plan teaches debt elimination. Dave Ramsey has a solid “no nonsense” approach to getting out of debt. The Seven Baby Steps are straight forward and will have you living debt-free in a matter of years. You would actually save more money by paying down your highest interest debt first, rather than the smallest balance, but I see where Dave is coming from. He wants to keep people motivated to pay off their bills.
Suze Orman offers a financial plan that covers everything from spending habits to investing for retirement. Suze deals with psychological and emotional roadblocks that keep you from building wealth. Her plan is most beneficial to individuals seeking to reduce debt and build a nest egg simultaneously. Both of them are very popular, but Orman has a unique way of connecting with her guests.
My only issue with both Suze and Dave is that their advice can be too simplistic and generalized. A one-size-fits-all approach may work for some clothing items, but not for financial advice. Everyone’s situation is different and the same financial plan will not work for everyone. Even still, Dave and Suze’s plans are a good starting point for someone just learning about personal finance.
Who do you prefer: Dave or Suze?